No additions based solely on survey statements without supporting material

Saaras Agro Industries Vs ACIT (ITAT Indore)

The Income Tax Appellate Tribunal (ITAT) Indore issued a ruling on appeals filed by Saaras Agro Industries against the orders of the Commissioner of Income Tax (Appeals)-II, Indore. The case revolved around additions made under Sections 68, 69, and 115BBE of the Income Tax Act, 1961, based on a survey conducted under Section 133A. The primary contention was the validity of an income surrender during the survey, later retracted by the assessee. ITAT partly allowed the appeal, considering judicial precedents and CBDT circulars.

The dispute arose from a survey conducted on September 22, 2015, at Saaras Agro’s premises. During the survey, the firm’s partner allegedly surrendered ₹4.11 crore, including discrepancies in stock and cash. However, in its income tax return, the firm disclosed only ₹1 crore as additional income. The Assessing Officer (AO) added the remaining ₹3.11 crore as undisclosed income under Section 69, rejecting the firm’s retraction. The AO also imposed tax at a higher rate under Section 115BBE and disallowed certain business expenses, treating them as fringe benefits. The CIT(A) upheld the AO’s decision, leading to the present appeal before ITAT.

ITAT examined the validity of statements recorded during the survey and their evidentiary value. The tribunal referred to the Supreme Court ruling in CIT v. S. Khader Khan & Son (2012) and the Madhya Pradesh High Court’s decision in CIT v. Digambar Kumar Jain HUF (2013), both of which held that statements recorded under Section 133A have no evidentiary value unless corroborated by independent evidence. The tribunal also cited CBDT Circular No. 286/98/2013-IT(INV-II), which cautioned against making additions based solely on survey statements. Given the lack of corroborative evidence, ITAT found the additions based on the survey surrender unsustainable.

However, ITAT sustained other disallowances, including interest expenses and excessive purchases, as the assessee failed to provide supporting documentation. The tribunal ruled that without substantive evidence, these claims could not be allowed. Consequently, ITAT partly allowed Saaras Agro’s appeal, deleting the addition under Section 69 while upholding certain disallowances. This ruling reinforces the principle that survey statements alone cannot form the basis for tax additions without supporting material.

FULL TEXT OF THE ORDER OF ITAT INDORE

The instant appeals filed by the assessee are directed against the orders dated 26.09.2019 & 09.09.2019 Passed by the Commissioner of Income Tax (Appeals)-II, Indore (in short ‘CIT(A)’ ), arising out of the orders dated 25.12.2018 & 19.12.2018 passed by the DCIT/ACIT, Khandwa & Income Tax Officer, Ward 1, Khandwa; respectively, under section 143(3) of the Income Tax Act, 1961 (hereinafter referred as to ‘the Act’) for Assessment Year 2016-17.

2. The assessee in ITA 910/Ind/2019 has raised following grounds:

1. Baseless addition of 3,1l,56,849/- u/s 69.:-

That the Ld. AO erred in treating Rs.3,11,56,849/- as undisclosed income u/s 68 and 69 against the facts of the case and against the law and CIT(A) erred in conforming the same U/s 69 of the act, ignoring the fact that the said amount was not an income of the assessee nor any provision of section 68 and 69 were applicable to the case of the assessee because of surrender obtained during the course of survey U/s 133A on the basis of dumb document without corroborative evidence. Hence addition to the income is illegal, wrong & unlawful hence needs to be deleted.

 2. Addition of l,00,00,000/- and Rs.3,11,56,849/- u/s 115BBE :-

That the Ld. AO treated the surrendered amount of Rs.1 ,00,00,000/- as income u/s 68 against the law and against the facts of the case and CIT(A) erred in conforming the same, ignoring the fact that the said amount was business income and the Ld. AO wrongly applied section 115BBE and also the Ld. AO made baseless addition of Rs.3, 11,56,849/- u/s 115BBE against the facts of the case and against the law. Hence addition to the income is illegal, wrong & unlawful hence needs to be deleted.

 3. Disallowance of genuine business expenses hypothetically treating as Fringe Benefit Tax:-

That the Ld. AO erred in making hypothetical addition by disallowing genuine business expenses being salary and wages of Rs. 21,59,044/- wrongly treating as fringe benefit tax U/s 40(ic) and also CIT(Appeals) erred in confirming the same which is against the facts of the case and against the law. Hence addition to the income is illegal, wrong & unlawful hence needs to be deleted.

4. Addition of 4,11,56,849/- needs to be deleted :-

That the addition of Rs.4,11,56,849/- is against the facts of the case and against the law. Hence addition to the income is illegal, wrong & unlawful hence needs to be deleted.

 5. Craves leave to add, alter or delete any of the grounds of appeal

That the appellant craves leave to add, alter or delete any of the grounds of appeal before or during appellate proceedings.

 6. Addition U/s 69 of the act is against the law and against the facts of the case :-

That the Ld. AO erred in making addition U/s 68 and 69 of the act and CIT( Appeals) erred in confirming the addition U/s 69 of the act whereas there was no unexplained investment U/s 69 of the act and without prejudice the so called unaccounted debtors for the first time hypothetically stated in the order of Hon’ble CIT (Appeals) and excess cash and stock not an investment, held as unexplained investment U/s 69 of the act against the law and against facts of the case hence the whole of the additions U/s 69 of the act needs to be annulled.

 Ground No.1 & Ground No. 4: are interlinked and thus taken together for disposal.

3. We have heard the rival submissions made by the respective parties and perused the materials available on record.

4. The brief facts leading to the case is this that a survey under section 133A(1) of the Act was carried out on the business premises of the appellant on 22.09.2015.

5. During the survey, statement of partners of the firm was recorded; as per the Ld.AO, the partner of the firm surrendered total Rs.4,11,56,849/- which includes Rs 48,75,500/- in respect of the difference of closing stock, and Rs 9,68,572/- on account of difference in cash and unsecured loan given to the tune of Rs3,53,12,777/-. However, while filing the return of income the appellant surrendered only a sum of Rs 1 crore as additional income.

6. During the course of assessment proceeding the Ld.AO made addition of Rs.3,11,56,849/- on account of income surrendered during the survey after reducing ₹1 crore being amount voluntarily offered by the appellant in its return of income in the following manner:

7. The case of the assessee before the authorities below and before us as well is this that the assessee by and under an affidavit dated 22.01.2016 filed retraction before the authorities below in respect of the income disclosed during the course of survey. According to the Ld.AO, the retraction is of no value. Since the document is not available, neither the assessee has been able to submit the said affidavit before the Ld.AO, no cognizance of such affidavit for retraction of statement and disclosure of income made during the course of survey on the basis of inventory and documents found during the course of survey can be taken into consideration at that juncture as of the view of the Ld.AO. According to him the retraction of the statement recorded during the course of survey has to be in reasonable time.

8. It was the further case of the assessee that the statement supplied to the assessee has no evidentiary value. However the LD AO did not find that particular submission of the assessee relevant as the statement recorded by the authorised officer has been duly signed by the partners of the firm.

9. The assessee further agitated this particular ground that the diary BI-1 and BI-2 impounded during survey started from 01.04.2015 but no date was available in the diary till 22.09.2015. It was contended by the assessee that the said material is not a diary but loose The nature of transaction is neither clear from the said loose paper as to whether it is a list of advances given against any material or service supplied by the assessee. Such submission made by the assessee was not found convincing by the Assessing Officer as the partner of the firm has admitted in his statement that both the diaries contain the name of the persons to whom loans and advances have been given which are not recorded in the books of accounts of the assessee.

10. The relevant observation made by the AO is as follows:

“The reply submitted by the assessee in this regard has been carefully verified. However, the same is not found to be convincing. The assessee has made reference of affidavit dated 22.01.2016 which has been filed during the course of assessment proceedings. The claim of the assessee is that it was submitted before the authorities for retraction of income disclosed during the course of survey. However, despite specific request made to the assessee he has failed to produce evidence regarding filing this affidavit before the authorities. In absence of such evidence it can safely be presumed that the assessee is producing this affidavit for the first time during the course of assessment proceedings. No cognizance of such affidavit for retraction of disclosure of income made during the course of survey on the basis of inventory and documents found during the course of survey can be taken at this juncture. In the show cause notice it has been elaborately discussed that the retraction of the statement recorded during the course of survey has to be in reasonable time. Therefore, the plea of the assessee cannot be entertained. In any case the documents found during the course of survey and excess stock found during the course of survey based on which the assessee has disclosed unaccounted income in his statement cannot be ignored.

The argument of the assessee that the copy of statement supplied to him does not bear the signature of the authorized officer is not relevant because the statement has been recorded by the authorized officer which is duly signed by the partner of the Firm. Therefore, it cannot be said that the statement recorded from him is not correct. As regards the argument of the assessee that it is not understood as to what is the basis of valuation of stock, whether it is on LIFO or FIFO system or average rate has been taken is not relevant because the inventory of stock has been signed by the authorized person of the Firm to be correct. The rates of items have been taken as stated by the authorized person. Therefore, to challenge the same now is nothing but ploy to retract from disclosure of additional income made during the course of survey.

As regards argument of the assessee that the diary BI-1 & BI-2 were started from 01.04.2015 and no any date was available in the diary till 22.09.2015 and no nature of transaction is made clear, whether it is a list of advances given against any material or service supplied by the assessee is also not correct because the partner of the Firm has admitted in his statement that both the diaries contains the name of persons to whom loans and advances have been given which are not recorded in the books of accounts of the assessee. Therefore- there is no need to clarify as to what kind of advances were noted in the diaries impounded during the course of survey.

 It appears that Ld AO has made addition on the basis of the statement recorded during survey which has claimed to have retracted by the assessee .

11. In this regard the appellant submitted that statement recorded during survey has no evidentiary value and further contended that the diary found from the business premises is a dumb document.

12. So far as the reliance made by the Ld.AO on the statement recording during survey is concerned, the assessee has contended that the statement recorded under section 133A has no evidentiary value and any admission made during the statement cannot be allowed to be the basis of addition. He has relied upon several judgments passed by different High Courts including the Hon’ble Supreme Court in the case of Commissioner of Income Tax, Salem vs. S. Kader Khan & Son reported in (2012 ) 25 taxmann.com 413(SC), the judgement passed by the Hon’ble MP High Court in the case of CIT vs. Digambar Kumar Jain, HUF, reported in (2013) 84 DTR 0365, the judgment passed by the Hon’ble Kerala High Court in the case of Paul Matthews & sons vs. CIT reported in (2003) 129 taxmann 416(KER). Copies of each of the judgment relied upon by the Ld.AR has been duly submitted before the authorities below and before us as well. He has further relied upon the circular issued by the CBDT being F. No. 286/98/2013-IT(INV-II) dated 18.12.2014 the copy whereof has been duly reproduced in the paper book filed before us. The contents whereof is reproduced hereinbelow:

“Instances/complaints of undue influence/coercion have come to notice of the CBDT that some assessees were coerced to admit undisclosed income during Searches/Surveys conducted by the Department. It is also seen that many such admissions are retracted in the subsequent proceedings since the same are not backed by credible evidence. Such actions defeat the very purpose of Search/Survey operations as they fail to bring the undisclosed income to tax in a sustainable manner leave alone levy of penalty or launching of prosecution. Further, such actions show the Department as a whole and officers concerned in poor light.

13.The contents of the said circular further been reiterated in the subsequent circular dated 10.03.2003.

14. We have carefully considered the judgment relied upon by the Ld.AR. The crux of observation made therein are as follows:

i. Hon’ble Supreme Court Of India in the case of Commissioner of Income-tax, Salem v/s S. Khader Khan Son [2012] 25 taxmann.com 413 (SC) held that “Section 133A of the Income Act, 1961 – Survey – Whether Section 133A does not empower any ITO to examine any person on oath; so statement recorded under section 133A has no evidentiary value and any admission made during such statement cannot be made basis of addition – Held, yes [In favour of assessee]”

 ii. High Court Of Madhya Pradesh in the case of Commissioner Of Income Tax Vs. Digambar Kumar Jain (Huf) (2013) 84 DTR 0365 held that “Merely on basis of statement u/s 133A of the Income Tax Act, which was recorded during survey, such addition could not have been made. To make such addition, some corroborating evidence against undisclosed income was required, which could not be found by the AO. The AO had made an addition merely on the basis of a statement recorded during survey u/s 133A of the Income Tax Act. The CIT (A) and Tribunal had rightly deleted addition by holding that merely on basis of such statement without corroboration, such addition could not be made. CIT Vs. Ms Dhingra Metal Works in ITA 1111/2010 and (b) CIT vs. S. Khader Khan Son (2008) 300 ITR 157 (Mad), followed.”

iii. High Court Of Kerala in the case of Paul Mathews & Sons v/s Commissioner of Income-tax [2003] 129 TAXMAN 416 (KER.) held that “Section 133A enables the income-tax authority only to record any statement of any person which may be useful but does not authorise for taking any sworn in statement. On the other hand, such power to examine a person on oath is specifically conferred on the authorised officer only under section 132(4) in the course of any search or seizure. Thus, the Act whenever it thought fit and necessary to confer such power to examine a person on oath, the same has been expressly provided whereas section 133A does not empower any ITO to examine any person on oath. n contradistinction to the power under section 133A, section 132(4) enables the authorised officer to examine a person on oath and any statement made by such person during such examination can also be used in evidence under the Act. On the other hand, whatever statement recorded under section 133A is not given any evidentiary value obviously for the reason that the officer is authorised to administer oath and to take any sworn in statement which alone has the evidentiary value as contemplated in the law. [Para 11]”.

15. In support of the contention made by the assessee that the diary found during survey is a dumb document, it is was specifically stated by the Ld. Counsel appearing for the assessee that no particulars whether the amount was given or taken, no address or contact details, no date, no supporting document, no PDC was found. Neither the said document bears the signature of either party. No identification of any persons is available in the said diary .

We find that in para No. 3.7 of the remand report the Ld. AO has stated that, “the impounded dairies are not dumb documents because there are names of the persons & also the amount of advances given to them”

16. The above contention of the Ld. AO has been claimed to be wrong & baseless by the appellant. However, we observe that merely name & amount does not constitute the details of advances given, in absence of:-

i. Signature of the recipient

ii. Signature of the person giving the loan

iii. Signature of witnesses in whose presence the loan has been given

iv. Address of the person to whom the loan has been given

v. date of giving the loan,

vi. rate of interest charged on the loan

Therefore the onus to prove, in this case, lies upon the revenue and not upon the assessee.

17. It is the case of the assessee that the revenue has to prove the undisclosed income beyond doubt and the documents relied upon in making addition should be a speaking one. On this count the appellant relied upon the judgement passed by the Mumbai Bench in the case of S. P. Goyal versus Deputy Commissioner of Income Tax, reported in (2002) 82 ITD 85, the judgement passed by the Delhi High Court, in the case of CIT vs. Girish Choudary, reported in(2008) ITR 619(Delhi), the order passed by the Hon’ble ITAT Bench, Ahmedabad in the case of Nishant Construction Private Vs. ACIT in  ITA  No.  1502/AHD/2015  dated  14.02.2017  and  finally  the judgement passed by the Delhi Tribunal in the case of Ashwin Kumar Vs ITO reported in (1992)42TTJ Delhi 644. A copy of each of the judgement passed by the different judicial forum has been duly submitted before us and before the authorities below.

18. The relevant observation and finding of the said judicial forum in those judgements are reproduced herein below:

i) In the case of CIT vs. Girish Chaudhary (2008) 296 ITR 619 (Delhi) – Delhi High Court has held that“That the revenue has to prove the undisclosed income beyond Further it was held that the document should be a speaking one and it should contain narration in respect of various figures noted therein. Otherwise the same should be considered as dumb document on which reliance could not placed upon.”

ii)  ITAT Ahmedabad in the case of Nishant Construction Pvt. Ltd vs. ACIT(ITA. No: 1502/AHD/2015) on 14/02/2017 held that “It was held that impounded loose sheet can at the most be termed as “dumb document” which did not contain full details about the dates, and its contents were not corroborated by any material and could not relied upon and made the basis of addition.”

iii) Honorable Delhi ITAT in the case of Ashwani Kumar vs. ITO, (1992) 42 TTJ (Del) 644 held that, “ When a dumb document, like the present slip, is recovered and the revenue wants to make use of it, it is the duty of the revenue to collect necessary evidence which may provide an acceptable narration to the various entries. The evidence collected should be such that any reasonable man would accept, the hypothesis advanced by the revenue that the figures written on the right side of the slip represent incomes earned by the assessee. It was conceded by the learned Departmental Representative that no such evidence has been brought on record”.

 After careful reading of the judgment cited above, it is found that statement recorded under Section 133A of the Act has not given any evidentiary value.  Furthermore, addition made solely on the basis of statement without corroborative evidence is not permissible under the law. Time and again such view has been taken by the different High Courts as it appears from the judgment as relied by the assessee. Moreso, it is a settled principle of law that the Revenue has to prove undisclosed income beyond doubt. So far as the document or loose paper or the diary as relied upon by the AO, while making addition is concerned, it is a well settled principle of law that the Revenue has to prove the undisclosed income without any room for doubt. The document relied upon should be a speaking one and should contain narration in respect of various figures noted therein. Unless the document contains full details about the dates and the contents thereof are supported by any corroborative material, cannot be relied upon for making addition. Thus, it is an admitted position, in the case in hand, firstly the basis of making addition is nothing but the statement given by the assessee during survey which has already been dealt with by us hereinabove and considering the order passed by different High Courts and the Hon’ble Apex Court, we find that the statement which has already been claimed to have been retracted by the assesse though the same has not been taken into consideration by the Revenue, even otherwise cannot be relied upon since the same was recorded under Section 133A of the Act having no evidentiary value in the eye of law. In this regard, we are enlightened and inspired by several judgments passed by different judicial forums including that of the judgments cited hereinabove. Moreso, we find no enquiry was conducted by the AO from even a single person named in the so called diary, if at all, to strengthen the finding of Revenue culminating with addition. We further observe that it is the duty of Revenue to collect necessary evidence which may provide an acceptable narration to various entries relied upon, in the absence of which, merely on the basis of piece of paper, without having any details thereof in regard to the transaction as we have already discussed, hereinabove, the addition is not found to be sustainable. Hence, the impugned addition on account of loans/advances is, hereby, deleted.

19. In addition to that so far as the excess stock is concerned the assessee surrendered ₹4875500/- on account of excess stock found during the course of survey, the assessee submitted that the audited books of accounts are correct and submitted that addition has been made only on the basis of the statement recorded during survey. No unaccounted cells/purchase invoices were found during the survey. No unaccounted lorry receipt, no unaccounted party Ledger found during the said survey. It was further contended by the Ld. AR that the survey team could not have counted and physically could have verified the stock within a limited time period of certain hours of survey. Even the colour pertaining to number of item(pieces/box/pockets/bori) and column of quantity per item(length/area/volume/weight is not mentioned. Such case made out by the assessee has not been able to be controverted by the Ld. DR. Hence, in the absence of any valid documents, the addition made in regard to excess stock found to be not sustainable. Thus, the same is thus quashed.

20. However, the third component being excess cash of Rs.9,68,572/- found during survey could not be explained by the assessee. The same is, therefore, confirmed.

21. With this ground Nos. 1 & 4 are partly allowed in the terms indicated above. This identical ground in ITA No.911/Ind/2019 is also partly allowed in view of no change in circumstances.

Ground No.2 – Applicability of Section 115BBE

22.So far as the applicability of section 115 BBE of the Act is concerned we find that the assessee is a partnership firm and other than individual. The only source of income of the assessee is the business income; unlike an individual partnership firm cannot have several source of income. It is further observed that the assesee had disclosed income of Rs 1 crore to buy mental peace. Business transaction, thus, in such circumstances, in our considered opinion the income cannot be said to be from undisclosed sources attracting section 115BBE of the Act. In this regard we rely upon the judgement passed by Hon’ble ITAT, Chandigarh in Famina Knit Fabs Vs. ACIT, ITA No. 14945/Chd/2017 order dated 08.02.2019:

 “Undisclosed income consisting of unaccounted receivables, sundry creditors & advances of business and gross-profit were business-income and section 115BBE was held to be not applicable.”

23. Hon’ble ITAT, Guwahati in Abdul Hamid Vs. ITO (2020) 117 taxmann.com 986 held that section 115BBE is not applicable to the undisclosed income embedded in undisclosed business receipts / turnover. In these decisions and many other, the judicial view is that section 115BBE does not apply to the income, the source of which is business.

24. However, Hon’ble Co-ordinate Bench of ITAT Indore, in Rajesh Kumar Bajaj ITA No. 16/Ind/2019 order dated 09.03.2020 has held that cash balance, found from undisclosed sources, attract section 115BBE. Following this, excess-cash of Rs. 9,68,572/-, for which the addition has been upheld in Ground No. 1 / 4 as above, shall attract section 115BBE. Thus, in conclusion, it is held the income of Rs. 1 Crore shall not attract section 115BBE but the undisclosed income attributable to excess cash of Rs. 9,68,572/- shall attract section 115BBE. This Ground is therefore, partly, allowed. This identical ground in ITA No.911/Ind/2019 is also partly allowed in view of no change in circumstances.

25. Now we take up Ground No. 3 which relates to the disallowance of Rs. 21,59,044/- on account of fringe benefit tax u/s 40(a)(ic).

26. During assessment proceeding, when the Ld. AO confronted the assessee about this point, the assessee made following submissions:

“We have already replied in our letters dated 08.10.2018 & 27.11.2018 that the firm had no liability of FBT during the AY 2016-17 and nothing of this kind is debited to our Profit & Loss Account. Still the same query is being repeated in your notice dated 04.12.2018 also. This appears to be hypothetical figure. We once again request you to please inform us the location / source of this amount of Rs. 21,59,044/- projected as FBT to enable us to submit suitable reply.”

27.Despite such categorical submission, the Ld. AO went on making disallowance without even communicating to the assessee, the source of alleged sum of Rs. 21,59,044/-. During appellate proceeding before Ld. CIT(A), the assessee made the same submissions, but the CIT(A) has also confirmed the disallowance without dealing with submission of assessee properly.

28. Before us, Ld. AR submitted that of late, without the assistance of revenue authorities, the assessee is able to find following figures in P&L A/c which add up to Rs. 21,59,044/-:

Ld. AR explained that there is nothing like FBT expenditure as alleged by Ld. AO, the sum of Rs. 21,59,044/- is composed of various expenses as enumerated above which are business expenses, allowable under the act and not at all hit by section 40(a)(ic).

29.  Ld. DR could not controvert the submission of assessee.

30. We have considered submission of both sides. Suffice it to say, that the assessee had repeatedly asked the Ld. AO to provide the source of FBT expenditure of Rs. 21,59,044/- as alleged. But the Ld. AO has not communicated to the assessee. However, the assessee has made working from P&L A/c and somehow calculated that the sum of Rs. 21,59,044/- is on account of total of certain expenses which are allowable under the We are satisfied with the submission of assessee. Accordingly, we delete the addition made by Ld. AO. This Ground is accordingly allowed.

31. In the result, assessee’s appeal is partly allowed.

ITA No. 911/Ind/2019 (M/s. Kanak Agro Infrastructure)

32. So far as the disallowance of interest of Rs.9,61,545/-, business expenses of Rs.5,60,686/- and Rs.8,25,010/- towards excessive purchases are concerned, we find that the assessee in spite of given several opportunities not filed any written submission before the authorities below. Hence these three additions are found to be sustainable in the absence of any written/oral submission filed before us. These three additions are, therefore, confirmed.

33. In the combined result, both the appeals are partly allowed.

Order pronounced on 29/09/2022 by placing the result on the Noti ce Board as per Rule 34(4) of the Income Tax (Appellate Tribunal) Rule, 1963.